Retirement village contracts: The top ten topics
26 Oct 2017
Recent news articles have shown a bewildering array of issues that retirees face when considering moving into a retirement village. It is extremely important to be aware of the legal consequences involved in .
In Part 1 of this series of two articles, Snedden Hall & Gallop Lawyers discussed the main types of retirement villages in the ACT. Here, in Part 2, we provide the top ten tips to consider when assessing a retirement village contract.
1. Documents you are entitled to receive before signing a contract
Deciding whether to move in to a retirement village is a big decision to make and it is important that you are well-informed about the legal and financial implications. To assist this, you should try to obtain as much information as possible.
We recommend, when exploring your options, that you request a general inquiry document as well as a disclosure statement from potential providers. Under the Retirement Villages Act 2012 (ACT), operators of loan-licence retirement villages must provide these to you within 14 days of your making a request. These documents should outline the services and facilities available and the associated costs for moving into and living in the village.
If you are considering moving in to a unit titled retirement village, you can request the owners’ corporation rules, the management agreement in place and the minutes of the most recent Annual General Meeting.
As outlined in Part 1 of this series, there are a number of different types of retirement village contracts with different forms of ‘ownership’. In the majority of cases, you will not ‘own’ the unit you occupy as the most common type of retirement village contract in the ACT is a loan-licence agreement.
There are other options, such as residential tenancy agreements, subleases/underleases, owning a retirement village unit directly as a registered proprietor (unit title) or indirectly as a shareholder (company title).
It is important that you consider which form of ownership is most suitable to your current and future needs (as well as the assets you want included as part of your estate).
Retirement village contracts can and do have a range of associated fees and charges. These include:
- waiting list fees,
- the upfront ingoing contribution or purchase price,
- contract preparation,
- ongoing recurrent charges,
- administration fees,
- owners corporation levies, and
- departure fees.
For loan-licence agreements, the most substantial fee is the upfront ingoing contribution. Operating somewhat like a reverse mortgage, this amount will often be a loan from you in favour of the provider, in exchange for the licence to live in the retirement village.
When the licence ends, you might expect that your ingoing contribution will be returned to you or your estate. The amount to be returned, however, often does not include interest and will be reduced by a departure fee. It is important to consider how any departure fee is calculated. It may be tied to an annual percentage for the number of years you live in the residence or based on the value of the property when you leave the residence.
Some contracts will include a cap on the departure fee while others are uncapped and can be very significant. Similarly, the licence agreement will also set out how any capital gain in the property value will be treated. Too few models see the provider sharing any capital gain with the resident.
So that you fully understand the ramifications of the fees and charges involved, for moving into, living in, and departing a retirement village, we recommend you seek financial as well as legal advice.
4. Terms and Conditions
Documentation around terms and conditions has become increasingly complex over the years. This is particularly the case in the retirement village context, where there is relatively limited competition in the sector and a comprehensive set of governing legislation which was recently updated in late 2016 and is currently undergoing further review. The terms and conditions for a retirement village will include details of ingoing contributions and recurrent charges as well as important dates and the rights and responsibilities for both you and the provider.
5. Services, facilities and fixtures
Before entering into any retirement village contract, you should also think about the types of services that you think will be suitable for you now and into the future. The documentation provided to you when you are considering moving into a retirement village will set out the services on offer. These may be included in a dedicated Service Agreement. At a minimum, you should expect the provider to manage cleaning and maintenance of common areas, gardens and facilities, insurance of the retirement village, management and administration services, and managing rates and taxes for the common property.
You may want to look out for whether the retirement village provides a village bus and other common facilities such as a gym or library, delivery of meals, affiliations with medical practitioners, security, entertainment and in-house ‘handyman’ services.
Some providers offer different levels of care available that you can move into and we recommend that you meet with the provider (and the other current residents) to discuss your options and how you could transition between the types of accommodation available.
You should ensure that you have reviewed a list of the fixtures, fittings and furnishings that are provided in the residential premises.
6. Rules and procedures
The retirement village contract should contain information on the process surrounding repairs and maintenance as well as deal with matters such as the operator’s access to a resident’s premises. These will often be set out in the ‘Village Rules’ for the community you move into. If a retirement village has ‘Village Rules’ then these must be included as part of the Contract so that you can review them before deciding whether to move in.
The Rules often cover the use, enjoyment and management of a retirement village and can guide the procedures around visitors, noise, security, pets, garbage collection, parking as well as gardening and maintenance.
The retirement village rules and procedures for dealing with dispute resolution will also be contained in the contract. Generally, these emphasise resolving disputes informally and working with the village operator directly or through a disputes committee made up of other residents. If these avenues don’t resolve a dispute, then you can apply to the ACT Civil & Administrative Tribunal (“ACAT”). ACAT offers a relatively simple and inexpensive way to resolve issues and has dedicated procedures for retirement village disputes.
7. Permissions that may be required
As with all community-style living, there is a degree of restriction that comes with living in a retirement village. This will particularly be the case if you do not individually ‘own’ the property, but rather occupy under a loan-licence arrangement.
This means that approval may be required before you can undertake certain activities. You will need to be wary of what is contained in the retirement village contract. For example, you may need to provide notice or request permission relating to keeping pets, having guests stay over, hanging a painting on the wall, using visitor parking, installing any large appliances, hanging your washing out to dry or being absent for more than a fortnight.
8. Cooling-off period
The first thing to note is that you have at least fourteen (14) days to review the contract and the disclosure statement before you sign any contract.
Secondly, even if you have signed a retirement village contract, you may still change your mind during the ‘cooling-off period’. After the operator provides you with a copy of the contract signed by them, you will have a window of seven (7) business days where you can rescind the contract without any loss or penalty. If you do change your mind during this time, you can provide written notice to the provider.
9. Settling-in period
If you wish to rescind or cancel the contract after you have moved in, there is a window available called a ‘settling-in period’ which is usually your first 90 days of occupancy. You may move out and terminate the contract during this time if you have a change of mind or instead move in to an aged care facility. For a change of mind, you will be entitled to recover your ingoing contribution minus the reasonable costs incurred by the operator (which is able to retain up to a maximum of $10,000).
10. Leaving the retirement village
If you own your unit in a retirement village outright or you are a registered interest holder, then leaving the village will involve selling or transferring your interest in the village.
If you are not the registered interest holder, but instead occupied your home under a licence or tenancy agreement, then the contract will be terminated either when the last surviving resident passes away or when you permanently move out of the property.
If you wish to move out, you will usually be required to provide at least one month’s written notice of your intention to the operator of the retirement village. This requirement for notice may be waived in extenuating circumstances with agreement between you and the provider. Under a loan-licence agreement, once the licence is terminated, the departure fee (and other fees) may be payable.
How can Snedden Hall & Gallop assist you?
Our team will be more than happy to meet with you to go through the terms of any contract you receive to highlight how all the elements may apply to you. It is important to have legal assistance to consider whether the retirement village contract meets your needs, now and in the future. We can explain the impact on you, your assets and your finances of the particular arrangements you are envisaging.
We offer advice on reviewing licence agreements, loan agreements, subleases and other contracts such as car park licences and can assist you with the settlement process. We can review the departure fee calculations provided by the Retirement Village to provide you and your family with peace of mind.
You can find out more about the different types of retirement village contracts, in Part 1 of this series on retirement village contracts.